There’s a lot of money swirling around the cannabis industry at the moment. Investors are confident in a return. But why?
According to the New York-based private-equity firm Tuatara Capital, the company has raised the largest amount of capital ever to invest in the legal marijuana industry.
They raised $93 million and recently closed an $80 million investment fund. This comfortably beat the previous record held by Privateer Holdings – a $75 million raise.
But while these amounts of money are certainly impressive, raising the funds in the first place is incredibly challenging. Many would-be investors are open to the idea of learning about the cannabis industry, even going so far as to sit down with firms such as Tuatara. Yet, when the time comes to convince them to part with their hard-earned cash, the “Wait, doesn’t this industry violate federal law?” elephant in the room starts trumpeting.
Increasing Investor Confidence
The DEA recently decided not to change marijuana’s drug classification designation. As you can imagine, this very public ruling has made finding investors and convincing them that the cannabis industry is a legitimate investment opportunity, without any adverse repercussions, somewhat difficult.
Many investors sought reassurance, wishing to be certain that their personal details would remain confidential. Once Tuatara achieved the desired level of confidence from their investors, the hard work was – by and large – behind them. This was because, once the cannabis industry was made aware of Tuatara’s intention to invest, the industry came to them.
Four specific sectors within the cannabis industry were selected for investment: cultivation, consumer retail, processors, and research and testing.
It’s that last one that has Tuatara’s Chief Operating Officer Marc Riiska particularly excited. Many of the research companies that will receive investment are building huge – and valuable – databases that many corporate buyers will want. Riiska subsequently believes this sector will see some of the first successful exits.
Eyeing Big Returns
Speaking to Forbes, Riiska intimated that all of the record-breaking capital raised will be deployed in the next three to three-and-a-half years.
Seasoned investors with private equity firms will usually expect a return on their investment within about five to seven years. Tuatara is of the opinion that some of investors will see healthy returns as early as two-and-a-half to three years, with the rest seeing returns in four or five years’ time.
Now, if this has piqued the interest of your inner Warren Buffett, you may need to wait. Tuatara won’t be raising money for their next fund for another two years.
However, there will be other options. MedMen Opportunity Fund, for example, recently announced a whopping $100 million private equity fund with a view to having that goal met by the first quarter of 2017.
If they manage it, they’ll snatch the title of record holder for raising cannabis investment funds from Tuatara.
So, how should you get involved? Read on to find out more.
How to Start Investing in Marijuana
Before investing in any industry, it’s important that you take the lay of the land.
The markets in North America are enjoying unprecedented levels of interest in medical marijuana stocks with money raised in this most recent quarter making it the busiest on record. It’s also six times what was raised in the second quarter of this year.
This hasn’t happened arbitrarily – the number of states in the US where marijuana is legal has reached 25 (plus the District of Columbia), and steps towards the legalization and regulation of marijuana are being taken in Canada.
All of this has combined to encourage the market with a number of multi-million dollar deals recently taking place. With all of this going on, it might seem a little overwhelming trying to get involved with investing in marijuana.
The best way to dip your toe into this emerging marketplace is to join the ArcView Investor Network.
A national organization dedicated to the research and investment in the cannabis industry, they are of the opinion that cannabis is the next great American industry. And this assertion is certainly backed by numbers: the industry grew 74% in 2014 to $2.7bn, and it’s expected to grow 10x by 2021.
The investor network is an organized Angel group exploring investment opportunities in this growing (no pun intended) industry.
It’s a particularly good idea to go down the route of investing through an Angel group if you are a novice or first-time investor. This is primarily because there are experienced investors who can help you navigate the legal pitfalls of this industry, all while handling the due diligence and negotiations on your behalf.
As it stands, investing directly in public cannabis companies is probably unwise. Those companies have gone public through a reverse merger into a public shell company rather than via an initial public offering (IPO), which is based on the merits of the company.
It’s also crucially important that you are aware that the companies who are directly involved in the production and sale of cannabis (edible and oil manufacturers, growers, and dispensaries) are technically still illegal under federal law in the US, even if they are legal at a state level in 25 of the 50 states. This equates to additional risk.
If you decide that investing in marijuana is something you’d like to do, and you want to go it alone rather than the Angel group option or something like ArcView, then here’s what you need to do before you cut that first check:
- Before you do anything, research, research, research. Dig into the company you have your eye on and its relevant senior people, and seek to understand the business, industry, and the associated legal risks.
- Then, if you are satisfied with the information that you have gathered, you should strongly consider appointing a lawyer to help you navigate the various documentation before investing.
Once you sign official documents, it can be difficult to undo at a later date. And, by investing in an LLC, you must comply with the state’s rules on ownership and investors. Should you fail to comply, you may end up on the receiving end of penalties including fines or the cancellation or suspension of licenses.
Are you ready to invest in the cannabis industry? Or are you deterred by the uncertain legal landscape? Tell us your thoughts in the comments section below.
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